No GST on Plotting Venture
The judgement contradicts the Gujarat AAR's decision.
Selling plots with electric poles, drainage lines, and approach roads would be considered land sales and will not be subject to Goods and Services Tax (GST), according to the Goa Authority for Advance Ruling. This is in direct conflict with a Gujarat AAR judgement.
"Land is excluded completely and in all cases, while building is included in the area of supply only if certain specified requirements are met," AAR said in a judgement issued last year but only just made public.
Previously, the Gujarat AAR (in the case of Dipesh Anil Kumar Naik, 2020) held that the sale of a developed plot (i.e., the sale of land/plot following the development of common facilities such as water line, telephone line, electricity line, garden, common areas, water harvesting system, drainage system, water pipelines, laying of underground cables, demarcation of individual plots, and other facilities as mandated by the development authority) is not equivalent to the sale of
The applicant Shantilal Real Estate Services owns the plot of land in the current issue before the Goa AAR. It plans to subdivide the bigger amount of property into smaller sections for sale to prospective purchasers. The property will be split into plots, new roads and drainage will be erected, and electrical poles will be adjusted and added as needed, but no structures or buildings will be constructed. The petitioner requested an early judgement on the question of whether the sale of the land constitutes a supply subject to GST.
After considering all of the facts and reasons, AAR concluded that the seller of property never transfers roads, poles, or drainages to the purchaser of the partitioned developed piece. These facilities will be provided to all plot holders regardless of title. Additionally, these facilities will be donated to the local government as specified by the application, and the local government will then become the owner of the road and/or electrical poles.
"The primary transaction is the sale of land, and these amenities are an inherent component of the sale of the plot of land; they do not alter the essence of the property, the transaction, or the activity, which is the sale of land," AAR said, emphasising that no GST would be levied on such parcel of land.
According to Harpreet Singh, Partner, Indirect Taxes at KPMG in India, one must keep in mind that the sale of the plot is considered as a sale of land for stamp duty and registration purposes, and since land sales are not subject to GST, there should be no GST consequences on the sale of plots. "Also, implementing the composite supply idea by constructing utilities, sewers, and electrical poles prior to selling the finished plot is a'sale of land,' since the primary supply is of land. The buyer's primary objective is to acquire land, not only its infrastructure," Singh continues.
A composite supply is one made by a taxable person to a recipient that consists of two or more taxable supplies of goods or services, or a combination thereof, that are naturally bundled and supplied in conjunction with one another in the ordinary course of business, at least one of which is a principal supply. The fundamental rate will be a GST rate on the whole supply.
Selling plots with electric poles, drainage lines, and approach roads would be considered land sales and will not be subject to Goods and Services Tax (GST), according to the Goa Authority for Advance Ruling. This is in direct conflict with a Gujarat AAR judgement.
"Land is excluded completely and in all cases, while building is included in the area of supply only if certain specified requirements are met," AAR said in a judgement issued last year but only just made public.
Previously, the Gujarat AAR (in the case of Dipesh Anil Kumar Naik, 2020) held that the sale of a developed plot (i.e., the sale of land/plot following the development of common facilities such as water line, telephone line, electricity line, garden, common areas, water harvesting system, drainage system, water pipelines, laying of underground cables, demarcation of individual plots, and other facilities as mandated by the development authority) is not equivalent to the sale of
The applicant Shantilal Real Estate Services owns the plot of land in the current issue before the Goa AAR. It plans to subdivide the bigger amount of property into smaller sections for sale to prospective purchasers. The property will be split into plots, new roads and drainage will be erected, and electrical poles will be adjusted and added as needed, but no structures or buildings will be constructed. The petitioner requested an early judgement on the question of whether the sale of the land constitutes a supply subject to GST.
After considering all of the facts and reasons, AAR concluded that the seller of property never transfers roads, poles, or drainages to the purchaser of the partitioned developed piece. These facilities will be provided to all plot holders regardless of title. Additionally, these facilities will be donated to the local government as specified by the application, and the local government will then become the owner of the road and/or electrical poles.
"The primary transaction is the sale of land, and these amenities are an inherent component of the sale of the plot of land; they do not alter the essence of the property, the transaction, or the activity, which is the sale of land," AAR said, emphasising that no GST would be levied on such parcel of land.
According to Harpreet Singh, Partner, Indirect Taxes at KPMG in India, one must keep in mind that the sale of the plot is considered as a sale of land for stamp duty and registration purposes, and since land sales are not subject to GST, there should be no GST consequences on the sale of plots. "Also, implementing the composite supply idea by constructing utilities, sewers, and electrical poles prior to selling the finished plot is a'sale of land,' since the primary supply is of land. The buyer's primary objective is to acquire land, not only its infrastructure," Singh continues.
A composite supply is one made by a taxable person to a recipient that consists of two or more taxable supplies of goods or services, or a combination thereof, that are naturally bundled and supplied in conjunction with one another in the ordinary course of business, at least one of which is a principal supply. The fundamental rate will be a GST rate on the whole supply.
